A Black swan is a concept coined by Nassim Nicholas Taleb to describe those highly unlikely events that once upon a time happen and have a huge impact in our daily lives. Black swan events can cause catastrophic damage to an economy, and because they cannot be predicted, can only be prepared for by building robust systems.
Fortunately for the legal sector, the outbreak of an unexpected event such as the pandemic of Covid-19 is not a Black Swan. However, digital transformation will move at a significantly faster rate. Legaltech will no longer be a hype but a need.
In this scenario, where should the law industry turn to in order to take advantage of the progress that has been made in other traditional industries? Let’s see what are the 5 main areas that will be reshaped:
Innovation makes good headlines, change however, is harsh and slow. Both sustaining and disruptive innovation come at a cost, but bring fundamental competitive advantages in the mid and long term if resources are assigned properly, as Clayton M. Christensen introduced already in the 90’s with the Innovator’s Dilemma.
Law firms must embrace new ways of integrating products and services as well as expand their current services in order to create safe, interoperable and compliant by design digital ecosystems, and amplify therefore the historical value that they have traditionally delivered. Tolerating failure, enabling transparency and fixing the right risk exposure that is required in this new ever-changing environment comes first, in order to test, learn, reformulate and validate what´s going to impact society next. Nevertheless, the most important piece of innovation is oftentimes derived from defining extremely well the problem. Sometimes the solution doesn’t even involve technology but requires instead a good analytical mindset.
In a world where expectations and needs are liquid, and services are fully customizable to attend the customer’s needs, is there something to be learnt by law firms?
Some references such as Markus Hartung and Jeroen Zweers signal that one main resistance to change is the simplicity of “the billable hour” as a sales tool. Nonetheless, this is beginning to change as client expectations move along over new market circumstances, pricing pressure, competition, proliferation of new digital channels and work habits. But, will true black swans such as the Covid-19 virus instigate a genuine revolution in the legal sector?
Now more than ever, value for clients should be crystal clear, and processes and pricing should be transparent and predictable too. Clients expect more for less, they want to pay for the value delivered instead of hours worked, and they expect a seamless access to custom-tailored services and expertise.
How is the legal world prepared to respond quickly to a volatile regulatory environment or a business model shift?
Bob Ambrogi stated before the pandemic: “The best way to be future ready is to not wait until the future to prepare”.
What about the current situation? Traditional law firms have experienced a linear advance over the traditional tasks and processes that historically preceded them. However, work force and internal methodology are not aligned with value add. Lack of implementation of agile methodologies, OKRs and advanced tools to organize tasks, measure performance and customer satisfaction that have a proven track-record in traditional industries, lead to an important opportunity cost. They could contribute to assign resources better or identify new opportunities in current or new markets.
How to build strong relationships with their external and internal teams through seamless collaboration? Is the firm able to view the status of all legal matters in play across the organisation? Are the routine tasks automated? Are workflows managed efficiently? And cases and contracts? What about the vast amount of unstructured data? Are the certificates and credentials properly handled to avoid identity fraud? How are reports and share files compiled? How is the organisation controlling the outside costs? Any billing surprise? These are some of the questions that should be asked prior to starting any disruptive action plan.
Digitalization comes before data intelligence. Still sources such as Gartner report that only 19% of in-house legal teams are prepared to support digitally transforming enterprises, while Wolter Kluwer reports that the lack of technology knowledge, understanding or skills is one of the major factors (36% impact) that generates resistance to the introduction of new technologies in law firms.
According to the 2019 American Bar Association Legal Technology Survey Report, only a little over half of firms have some sort of document or records management system (let alone a cloud-based system) and just 37% of solo practitioners have such a system. What are the reasons for the legal industry to lag behind in the new industrial revolution?
Fear of cloud-based solutions and digitalization of classified information has led companies and law firms to irrationally slow, costly and inefficient processes that are still considered in some eyes to be justified by a sense of stronger security and better protection for the customer. But…is common perception actually true?
New digital identity solutions for signature & power management based on Zero-Knowledge Proofs (ZKPs) that rely on technologies such as Blockchain and Secure Multiparty Computation, generate new ways of managing and analyzing information and access with no privacy-violation vulnerabilities and a risk reduction for information or identity theft that could compromise the security of clients.
Once privacy by default becomes the standard and information is no longer stored and managed physically, a new AI market of solutions emerge, bringing with it the powerful ability to identify contract types and clauses, or to extract certain terms, such as the name of the parties, or to understand if for example a contract is assignable. Still, understanding the intent and underlying concepts in contract language is something that needs to be supervised by a traditional lawyer, concentrating the role on where the value is while saving time on repetitive tasks with low impact and value that can easily be automated. New opportunities for standards could build the bridges inside the industry to unlock the value for machine learning and private data-mining technologies while increasing the accessibility and quality of information for more useful and resilient results.
Under these new market circumstances where digital services and the ability to perform complex tasks are a must, will the first movers be the ones that concentrate and extract most of the market value, as it happened in the information services industry?
5. Ethics & Governance
What could happen when AI algorithms are not trained taking into consideration standards and ethical guidelines, or if users in general don’t understand the manner in which decisions are taken or assumptions are made?
Model explainability is one of the most important problems in machine learning today. It’s often the case that certain “black box” models such as deep neural networks are deployed to production and are running critical systems. Algorithm governance might be not only a technical subject matter but also a legal one. As soon as these tools evolve, the need for understanding and explaining their implications at its fullest becomes critical for protecting stakeholders. Templates and standards allow us to generate better models while guaranteeing that they are neutral, transparent and free from all types of prejudice.
Legaltech: Examples to follow
Suddenly, lawyers are having to engage with clients and colleagues entirely remotely. In some countries, they may have to navigate new forms of online courts. Contract issues are arising, including how to approve and sign a contract if there are no directors in the office. There are corporate governance issues such as how could management and oversight bodies continue if they were all virtual, and how can directors discharge their duties if they can’t hold board meetings or annual general meetings in the current formats.
Some of the following initiatives could serve as use cases that may help overcome currentlife challenges:
- Alternative legal Service providers
Tech-enabled legal services provider Axiom Law for example provides custom legal services delivered with highly curated specific talent in order to provide a better customer satisfaction. Moreover, custom service is an important part of explaining the success of Axiom, while the other is accessing & retaining the best talent reimagining not only service delivery but also the lives and careers of its attorneys. Lawyers can work how, when, where and on what they want to.
- Virtual justice
The most advanced courts in China, specialize in a wide range of internet-related cases. The entire litigation process can be conducted online, including filing and service of documents, pre-trial mediation, collection and presentation of evidence, preservation of assets, the trial, judgment, enforcement, appeal and other processes. Any part of the proceedings can be conducted offline upon the request of the parties involved or the needs of the trial. A national digital evidence platform based on Blockchain has been developed as well as a wide range of AI tools across case management and adjudication processes, transcription of trial proceedings and the provision of legal information to the parties (ie. whether the court is the appropriate jurisdiction). In this sense, the Supreme Court of New South Wales, Australia has stated the need to minimize the need for parties to attend the Court through the use of online courts and telephone and video conferencing.
Despite the fact that the nature of Spain’s judiciary system is completely different, should it adapt its proceedings in any way?
Digital Identity: Leypal Co-Founder Edwin Mata, highlights the need to approve the Spanish Trust Services Law in order to clarify the requirements for remote authentication/identity verification validity (article 24.1 B of eIDAS regulation), following Italian, Estonian or other advanced jurisdictions. From now onwards, to hinge on physical presence processes makes no sense.
Payments in the UK: dissuasive methods have been taken place to limit the usage of cash during and prevent the spread of COVID-19 by increasing the PIN-less contactless payment limit from 30£ to 45£. The balance between convenience, security and data protection must be reviewed.
Should these kinds of measures serve as an inspiration to incentivize the adoption of digital enablers in the Spanish legal system and take action in positive ways to benefit us all under the current situation?
Sometimes changes come unexpectedly and when random unlikely events like this global pandemic happen, companies have no choice but to adapt their pace, processes and culture overall in order to maximize their value in the new incoming market situation. This could be the definitive opportunity to take action that could ultimately reshape our legal services for good, forever.
Ignacio López del Moral, New digital businesses regulation at Paradigma Digital.
Daniel Díez García, Head of emerging businesses at Paradigma Digital.
Javier Sánchez Carrascal, Strategy Consultant & Business Designer at Paradigma Digital.